DIY Wealth Management – All You Need To Know

By BankBazaar | July 12, 2017

DIY Wealth Management – All You Need To Know

Who doesn’t love pampering? The more the better! This is exactly what wealth management guys do. They make it easy for you to understand financial products such as Mutual Funds, they recommend financial products that suit your profile and they even get the forms signed right from the comfort of your home. But all this at a cost, of course! Is it worth it? What does this whole service entail? If you have quite a bit of surplus, can you manage your wealth on your own? We answer these questions and some more.

Managing your wealth for you

Wealth management has gained prominence in the past decade as more number of Indian millionaires got added to the long list. Most firms offer these services to those with a surplus of Rs. 10 lakh or more.  The services include portfolio and risk profile evaluation, recommendation of investments and subsequent reviews of your portfolio. A fee is charged for the services – some charge it as part of the investment while some others charge a flat fee.

The biggest issue with wealth management services is the chance of the firm being lax in managing your investments. Any wrong decision could mean a big loss. Also, some firms push products that they get higher commissions for. This way, you could end up investing in the wrong products. Our take – if you are able to manage your household expenses well, you should be able to manage your investments, at least initially. You just need a little time and knowledge and you will be set for the best returns. Once you have set up your investments the way you want and have a solid portfolio, you can seek expert help. Here’s how you can get started.

How to DIY

When you are encountering a problem, it is commonplace to see people telling you that the first 100 days are the toughest. But in the world of wealth, things work just in reverse, especially for the rich. As you start investing, you will understand that getting to the first crore is often much easier than making the money to grow to the next couple of crores. Let’s take a look at what you might need to do to get your portfolio up and running.

Mutual Funds – These are the best investments to start with. You can have a mix of equity and debt Mutual Funds. But before that, set your goals right and determine your portfolio mix. The basic strategy when it comes to wealth management is to stick to your portfolio mix throughout. This mix is ideally determined right at the start before you begin investing. Also, along with diversification across asset classes, diversification within the asset class is equally important. This will help you reduce your risk within the asset class. This is, of course, necessary for equity Mutual Funds if you are investing in them.

Therefore, when you decide the amount of equity exposure you require in your portfolio, at the same time you need to decide within equity category whether you are adequately diversified. Include stocks and Mutual Funds when calculating your equity exposure. If you are not choosing an equity diversified fund, it might be necessary to diversify across schemes. The same goes for the fund houses. Investing in a single fund house might prove to be risky.

Additional Reading: Why Debt Mutual Funds Are Better Than Fixed Deposits

  • Smart tip: Using the Systematic Transfer Plan (STP) route – If you are not comfortable investing in equity Mutual Funds right at the start, you can use the STP route. You can invest a large sum in a debt Mutual Fund (that invests in fixed-income securities) and then using the STP channel, transfer funds to an equity Mutual Fund. This way, you gain gradual exposure to equities.Now, what is STP? This is a plan offered by Mutual Funds that allow you, the investor, to systematically transfer a certain amount of money from one scheme to another. This will be done at pre-determined intervals that could include monthly, quarterly and other such periods. Apart from equity exposure, another advantage of using STP is that it lowers the risks associated with timing the market. This is because STP is very similar to the Systematic Investment Plan (SIP) and you can invest regularly in the market without worrying about volatility. You get the benefit of rupee cost averaging while your money is earning returns higher than your bank fixed deposits.

ULIPs – These are plans that offer both insurance as well as return on investment. A part of your money goes for the insurance cover and the other part is invested. So, you get a dual advantage. You can even choose whether you want to invest in equity schemes or debt schemes based on your risk appetite. The charges for ULIPS have now been regulated and you don’t have to worry that you might have to pay exorbitant fees. Also, there is no need to review your policy on a day-to-day basis because insurance firms have come up with many choices to relive you from worries.

For example, you can choose a fixed portfolio strategy where you can allocate funds to equity or debt based on your risk appetite. Don’t have the time or knowledge? No worries! Insurance firms offer you the life cycle based portfolio strategy. Here, the firm will invest in debt and equity, based on your age. Wait! There’s more. You also have the trigger based portfolio strategy. Now what is this? Under this strategy, investments are done based on pre-defined asset allocation. This strategy is mainly used to cash in on the equity market gains. Choose a strategy that you think will be right for you.

Additional Reading: Gifting Ideas: A Single ULIP Over A Bouquet Of Tulips

You, of course, have the option to switch between funds. Many people want to shift from equity to debt investments when the stock markets go down while there are many others who would want to do the reverse because they get to enter the equity market at lower levels. Whatever your reasons, you are allowed to switch between equity and debt funds. Most insurance firms offer a fixed number of free switches per year. Looking at making many switches? You might need to pay for them. Switching funds helps manage your portfolio effectively especially during volatile phases.

You need to keep reviewing your Mutual Funds so that you get the maximum bang for your buck. The review or change in your Mutual Fund portfolio will depend on the nature of schemes you have in your kitty. However, even though monitoring of SIPs is not necessary, you need to keep track of the performance of all the schemes that you have invested in. The ideal time to review your Mutual Fund portfolio is on a half-yearly or yearly basis.

Compare the schemes to their peers and benchmarks. Chuck underperformers only if they have been underperforming for over a year. Ideally you need to observe a fund in a particular category such as equity diversified funds over 18-24 months before you decide to replace the fund. And don’t go for too many funds. Ideally most of your funds should be equity diversified. You can have 1-2 mid-cap funds, a thematic or sector fund and a gold fund. All in all, ensure that your Mutual Fund portfolio never exceeds 10 funds. This way, tracking will be easy.

  • Smart tip: You can use the fund switch options to safeguard your investment gains in a timely manner. For instance, towards the later part of the Ulip tenure (ideally 3 years before maturity), you might want to shift from equity funds to balanced funds for protecting your gains. Many firms offer online switching. This is of great convenience to many investors.

    Insurance firms offer you the convenience of choosing the payment tenure and frequency of your premium. You can choose a one-time payment or payments every few years or payment in regular annual installments. Firms also provide you with loyalty bonuses if you stay invested for longer tenures. Want more reasons to invest? Ulips can be used for tax deduction under Section 80C of the Income Tax Act.

How to manage your stock investments – Stocks are a great investment for the long term and are known to beat inflation if you stay invested for more than 5 years. Diversification in a stocks portfolio is a critical aspect. What does it mean? When it comes to stock investing, it simply means allocating money to different companies and sectors. Since there are risks associated with stock investments, diversification will help reduce these risks. Remember, higher the risk, higher the returns.

Investing in a single stock or sector will result in high risks. However, many studies conducted by stock experts show that one can achieve higher return and reduce risks at the same time by diversifying within stocks. But you must ensure that you invest in stocks that are not directly related. There are no model stock portfolios that one can follow to ensure diversification. Investing in good stocks across sectors should do.

Additional Reading: What Really Affects The Stock Market

Another aspect of managing your stocks portfolio is deciding the right time to sell stocks. This is as important as buying those stocks. The most common practice followed by many investors is that they often set a target price at which they have to sell the stock. There are its own pros and cons. The advantage is that you don’t need to wait for the stock to keep moving up, if you set the target right. You can sell the stocks and get the gains while minimising the risks involved in waiting. However, there are disadvantages to this strategy too. One is that you set a very high target and you might never achieve it. You lose out on gains while waiting for the stock to achieve that target price. Another disadvantage is that you might lose out on gains if the stock keeps moving up after you sell it.

This is true for good businesses that give great returns in the long term. This is why you need to look at the valuation of the firm. If the valuation of the firm has hit its peak, it is most probably time to sell the stock. A better way of doing it is by setting aside target returns for certain high risk stocks. These are stocks that have potential to do well but might be risky due to their nature of business or popularity. For example, you can set a target of 15% returns for these stocks and liquidate them when the target returns are achieved.

Additional Reading: Your First Steps To Investing In The Stock Market

  • Smart tip: To maximize returns from your equity portfolio, always balance them out with other asset classes as mentioned earlier. This will help you keep your portfolio aligned with respect to your risk preference. For example, if you have decided to keep 50% of your money in equities and 50% in debt, you might need to reallocate your portfolio after a regular interval in case the stock market moves up or down at a quick pace.

How to manage your real estate investments – Having a huge amount of money in your hands will give you the liberty to try different asset classes, even the expensive ones. Real estate is one of them. You might want to invest in a number of houses and plots if you have a huge surplus. What’s more? You can use your Home Loan to get tax benefits. You can even use loss from house property to minimise your taxes.

Additional Reading: Real Estate Investing 101

Here, you need to be very clear about why you want to invest in real estate. For instance, if you are looking for regular income, you can consider investing in commercial property instead of residential property. Commercial spaces give more rental income than residential ones. If you are looking for shorter-term investment and quick liquidity, then investing in residential apartments may be a better option. If you are looking at pure capital appreciation, land might be better. However, just like other asset classes, you need to follow diversification rules here too. You can do the same with real estate if you are clear about the objectives of your investments and how it will fit into your overall plans.

Note that your real estate portfolio becomes skewed after buying your first home. You can correct this by making real estate an asset class in your portfolio. There are, of course, portfolio management services that offer funds investing in real estate. If you are not comfortable with investing in real estate directly or do not have the time to monitor your real estate investments, you should ideally look at parking your money in funds that invest in real estate. But the returns from such funds might get diluted over the long run as these funds keep changing their investments more frequently than you would.

However, if you have the patience for tracking investments and are comfortable with real estate transactions then after having bought a house for self-occupation, you can consider investing in a small commercial space. Once you are done wit these, you can consider investing in a plot of land. However, while doing all this, it is important that you stick only to reputed builders and developers.

Additional Reading: Avoid Real Estate Scams To Reap Rich Returns

But before getting into real estate as an investment, you need to address a very important point. That is- what percentage of your portfolio should be exposed to real estate? Note that there is no thumb rule for deciding on this percentage. It will depend on what your goals are. The stage of your career, your age, your dependents and your risk appetite should also play critical roles in the decision. For example, let’s suppose you are in your 20s and are willing to take some amount of risks. You have Rs 100 with you. You can consider making your portfolio this way: 65%-70% in growth assets, 25%-30% in fixed income assets and 5%-10% in liquid assets. Growth assets will typically give you a 15% return, you can expect about 9%-10% from fixed-income assets and liquid assets should give you a return of around 4%-5%.

When you consider a weighted average of this portfolio, you will see that the overall returns will easily beat inflation and give you meaning returns in the long run. Now, how does real estate come into the picture? Real estate is considered to be a growth asset. So, in the 65%-70% of the growth assets, you should decide how much you want to give to real estate. This will depend on your life goals and how much you understand real estate. Many in their 20s can have up to 20%-30% of their portfolio in real estate. Note that since real estate usually entails huge investments, your portfolio could go haywire. Take care to keep your asset allocation in place.

If you want to reduce burdens after retirement, you need a home. This will save the hassles of rent, shifting to another place and of course, menacing landlords. As nuclear families are on the rise in India, there is a desire for people to have a life of their own – a life away from others including their parents. There are also a number of people who want to maintain their financial independence after their retirement. These might be the reasons why retirement housing has mushroomed in the country.

Today, there are more and more number of people seeking communities with people of the same age group. Retirement housing addresses this need and offers customized housing amenities for elderly people. If you are planning to purchase a retirement house, then you need to plan and save for the same. This has to be one well in advance – ideally 10 years before you actually retire.

  • Smart tip: The other benefit which retirement homes offer you is that you can easily make it a cash cow through reverse mortgage. This you can do whenever your own finances fall short of meeting your increasing medical expenses or falling returns from fixed-income investments. You can, of course, reverse mortgage as the option for any of your properties. However, parting with your retirement house might be relatively easier on your mind when compared to other properties you might have built with the intention of leaving them as a legacy for your children.How does reverse mortgage work? You need to approach a bank for getting this facility. When you contact a bank for reverse mortgage, the bank will send someone to assess the value of your property. After this is done, the bank will ascertain a monthly amount that it will pay you on a monthly basis. This will happen till you or your spouse are no more. Note that you can continue to stay in your house till you or your spouse is alive. But the bank will become the owner of your house after the death of either the husband or the wife.

    So, the reverse mortgage actually works as a financial cushion for you and your spouse after you retire. Reverse mortgage ensures that you don’t have to sell your house in a hurry or prematurely liquidate other financial assets during your golden years. But why should we be talking about retirement housing at all? Because most people delay buying a house and it spills over to their retirement years, leaving them with hardly any retirement money.

    Managing real estate after retirement should ideally be avoided. This is the reason why you need to plan where you will be staying after your retirement well in advance. Also, your needs after retirement change and living in a place with amenities such as 24/7 medical assistance might be a necessity rather than choice. So, plan your retirement home during your working years.

How to manage your commodities portfolio – Indians love commodities – be it gold or silver. So, if you have a good amount of surplus, we are sure you would want to invest in these metals. But you need to keep some points in mind. As you get active in this asset class, you need to ensure that your investments in this category doesn’t cross 10% of your portfolio. Even though you might buy these metals whenever there is a need, there is a better method. You can buy gold in the form of bars and coins. This way, you can invest smaller amounts.

Also, you can choose to make these investments at regular intervals such as monthly or quarterly. What’s the advantage here? You get to average out the cost of investing in the long run. If you want to invest a lump sum, you need to know the factors that affect prices. Now what are these factors? There are three main factors that affect prices – one is inflation, another is the value of the US dollar and the other is demand situation. When inflation rises, precious metal prices tend to rise along with it. The scenario of rising inflation can be used as a good buying opportunity for gold because gold is an effective hedge against inflation. Gold the world over is priced in US dollars and any significant movement in this currency will affect gold prices.

A good time to buy gold is when the US dollar looks weak against a basket of international currencies like the Euro and Yen. You also need to look at the demand situation. When the demand for precious metals are high, their prices will rise. This is true during festive seasons. You need to keep this in mind when buying gold and silver. There are two other important times when you could consider buying precious metals. One is when interest rates the world over are low, like now. The other is when there is unrest in the country or across the world. All the mentioned reasons have been prevalent for quite some time now and that is why gold prices have been rising in the past two years.

Additional Reading: Is Now The Right Time To Be Buying Physical Gold And Silver?

The most important point you need to be aware of is when to sell these precious metals. Your decision to sell precious metals is also dependent on all the above factors- the factors that influenced you to buy them. But there is one indicator that should urge you to sell. This is the turnaround of the US economy. Oh! What’s the connection? When the US economy recovers, dollar would strengthen and interest rates in US will rise. This will lead to profit booking in precious metals and investment flow into other assets. This is because assets such as bonds or the stock market will look attractive when an economy starts growing. So, when people dump precious metals, their prices will fall. So, shouldn’t you be selling then? Hope you got the connection now.

  • Smart tip: Just like other asset classes, you need to do a frequent review of this one too. You might need to rebalance if prices have run up significantly. When do you rebalance? Usually, you keep a track of the portfolio value and rebalance when the allocation changes due to rise or fall in prices. Another point when you rebalance is when your goals change. For instance, suppose your child’s marriage is near, you might want to liquidate the gold investments to buy jewelry for the occasion.Apart from these, you should also increase allocation levels when prices fall significantly. Looking at the equity to gold ratio can help you too. When the equity to gold ratio is rising, you can take it as a sign to invest more in financial assets. When the ratio is declining, what should you do? You need to allocate more to precious metals to maximise returns from them. You can use the Sensex figures and 1 kilo gold price for calculating this ratio. How often should you rebalance your portfolio? Unlike stocks where you need constant review and rebalancing, in case of precious metals avoid rebalancing more than once in 2 years.

 How to manage portfolio risks – Derivatives are the best way to manage risk that arise because of your investments in equities and commodities. Derivative is an instrument whose value depends on the value of the underlying asset. Derivatives are of two types – one is the futures contract and the other is the options contract. Futures contract is a contract that will help you buy or sell a particular asset at a pre-determined price and on a pre-determined date.

So, a stock future will help you buy or sell that stock at a pre-determined price and on a pre-determined future date. Options give you the option to buy or sell an asset at a pre-determined date and price. Under options, you have two types. One is the call option that gives you the option to buy and the other is a put option that gives you the option to sell. You can decide whether to actually buy or sell when the option matures. For buying an option, you pay a premium, which is usually a small amount.

Additional Reading: 5 Risks You Should Be Aware of As An Investor

Futures are riskier than options. This is because in case of the latter you buy just the option to buy or sell, by paying a small amount. But in case of futures, you will need to compulsorily buy or sell the asset whether you incur a loss or make a profit. For example, let’s suppose you own 250 shares of Reliance Industries (RIL). Even though the stock has good long term prospects, you feel that RIL will go down to Rs. 1000 from the present Rs. 1090 in the coming months. So, you buy a 1090 put option for Rs.35. If the stock falls to Rs. 1090, your loss would be only Rs.35. Even though you suffer a loss of Rs. 22,500 (250 x 90) on the stock you own, you would have made a profit on your put option contract.

Apart from helping you mitigate risks, there are many advantages to using derivatives:

  • The leverage advantage – For derivatives, you need to pay only the margin money for trading and the rest of the contract amount needs to be paid only when the contract matures.
  • Settle them the way you want – Most futures contracts allow you to choose either physical settlement (getting the stock or commodity in hand) or cash settlement, whichever you prefer.
  • The golden standards – Don’t worry that you will get bad quality goods if you choose physical settlement. Even if you choose to get those goods delivered, you will get only good quality commodities. Because of the standardisation and grading practices of commodity exchanges, one can be assured of the quality of the commodity. So, next time, you buy a gold futures contract and you chose physical delivery, you can be sure that you will get top grade gold bars.
  • Smart tip: Derivatives can not only minimise risks, they can also maximise gains. Here’s another example that will show you how. Suppose you want to buy gold 2 months from now. Buy you think prices will rise from Rs. 2,810 now to Rs. 2,900. You buy a gold futures contract with a strike price of Rs. 2,850. If gold has risen to Rs. 2,900 at the time of expiry of the contract, you would have saved Rs. 50 per gram on gold as you have a contract to buy gold at Rs. 2,850.

A derivative can help even out the highs and lows that the underlying asset will go through over a period of time. This is true for both equity and commodity derivatives. Derivatives are like insurance. We all buy insurance policies to protect ourselves from unexpected risks to our lives and health. In a very similar way, derivatives can be used as a protection for the volatility that your portfolio might encounter.  However, derivatives being complicated financial products, you must take the help of a financial expert before you decide to go for them.

How to ensure your wealth remains intact – One of the biggest threats to your wealth can come from emergencies. This is when you need large amounts of cash in a very short period of time. Such events can make or break your progress towards creation of a bigger lump sum. During these times, you tend to sell your assets to get the funds you need. This may not be the right thing to do always because this can impact your wealth creation process depending on when the emergency occurs.  Two things could happen. One is that you might need to liquidate your assets at a depreciated value and pay charges for such withdrawal. Another thing is that you will lose the benefit of compounding.

This means that you have start from scratch if you liquidate all of your investments in a particular asset class such as equities which need time to grow. The better way to meet your emergencies is to look for alternative cash avenues like loans against your assets such as Fixed Deposits, property, bonds, gold, car, shares, Mutual Funds and Life Insurance policy. Note that these secured loans come at a lower rate when compared to unsecured loans like Personal Loan.

This method will help you pay off the outstanding loan balance on a reducing basis while keeping the compounding interest on your investments intact. Your gains from compounding will be much higher than the cost you pay for your loan. So, you will remain a net gainer. How is that? Suppose, you take a loan against Fixed Deposit at an interest rate of 9% and your average portfolio return is 12%, then, you are making a gain of 3% while still having funds to resolve your emergency.

Additional Reading: How To Build An Emergency Fund

Smart tip: Investing in Liquid Mutual Funds for your emergencies will help you earn higher returns when compared to Fixed Deposits. There are no penalties for withdrawal and you can withdraw the funds anytime you want. Average returns from Liquid Funds have been 8% in the past year while one year Fixed Deposit will earn you only 7%-7.5% presently. The dividend distributed by Liquid funds is subject to taxation but the fund house will pay the tax before they distribute it to you. So, no tax hassles there. Another notable point is that Liquid funds have no Tax Deducted at Source (TDS), which is mandatorily for bank FDs.

How to generate regular income from Mutual Funds – You can choose to invest in Monthly Income Plans (MIP) offered by Mutual Funds. The objective of these funds is to generate a monthly income for the investors. These funds invest in a mix of equities and debt securities. These Mutual Funds generate a return of 11%-12% a year and are better than Fixed Deposits. The other option that Mutual Funds give you is the Systematic Withdrawal Plan (SWP). This is a plan where you withdraw money from your investment periodically.

This is a good option for those investors who want regular income or a particular amount every month. You will withdraw a small sum every month or quarter while the remaining amount will continue to earn money until it is withdrawn. However, since the plan results in your capital getting depleted, you should opt for this plan after retirement when you feel there is an income shortfall. So, SWP offered by Mutual Funds gives investors a source of generating regular income without timing the market. You don’t actually care whether the market is up or down.  It is a disciplined approach to withdrawing your money over a period of time. You can also use this option for de-risking your portfolio in the long run, that is, withdrawing from equities and putting the money in fixed-income investments.

Additional Reading: Smart SIP Strategies

Do you need expert help – Is making your wealth grow so difficult? Yes, it is a lot of hard work, especially if you have a huge surplus. One of the reasons why it might get tougher later is because it will not be easy to re-arrange the mix of assets that you may end up with. This will include investments like insurance, stocks, real estate, fixed-income options (bonds, fixed deposits and debt Mutual Funds) and commodities such as gold, silver, among others.

As you know, the conditions in the different investment markets such as stock or bond markets, keep changing dynamically. So, it is not easy to juggle all the investments when you have too many of them. Also, if you have hit it big in one asset class and are busy celebrating for too long, you might miss checking out the loss making ones that need to be got rid of. This is where you might need expert help.

As you try to progress from being a lakhpati to a crorepati, doing the same thing over and over again may not be enough. You need to figure out the best energy drinks (read investments) that will boost your portfolio. You need to revisit your asset mix and goals more frequently. While you should increase your investment contributions as your salary and savings go up, you also need to keep increasing you insurance covers. This is because you will be spending more due to improvement in your lifestyle and your insurance cover may not be adequate.

Understand that with the increase in your salary, addition of family members (read children) and new loans, your approach to finance will not remain the same. You need to keep making adjustments to your investments. Step up your investments, link them to your goals and consider the implications of taking increased investment risks. You can, of course, continue to keep a decent equity exposure. Ideally you should have 60%-80% of your portfolio in equities as long as you are at least 15 years away from your retirement. Same way, you should continue to earmark fixed income investments for shorter term requirements.

It might become evident to you that as your portfolio grows along with your wealth, the whole state of affairs that had started with a term plan and a Fixed Deposit is getting fairly complicated. Unless you have some time to handle all that financial information on your own, you surely need expert help. In this fast paced day and age, most investors do not have the time or resources to spend hours and hours to take care of their finances. It takes time and effort to identify the right stocks, bonds or Mutual Funds. In this context, it is better to hand over the job to a finance professional who will do it for a small fee. This is where wealth management guys come in. By choosing these services, you are just scaling up the services you took from a fund manager of a Mutual Fund firm to a more personalised and wider territory.

There will no dearth of wealth management firms. A number of banking as well as non-banking companies are setting up their wealth management arm. Everyone wants to capitalise on the India growth story. They seem to be aggressively wooing investors through advertisements and hoardings. So, it is your responsibility to choose the right wealth manager from a large set of choices available. Remember that this decision can be critical as this will have a huge impact on your financial goals. There are some points that you need to keep in mind before choosing your wealth manager. Here they are:

Your time, your money – Your wealth manager should never be in a hurry. The manager should be willing to spend ample time in understanding your financial needs. You should be questioned on your savings and spending patterns, risk appetite and dependents, before you are shown a gamut of financial products. Wealth managers should give a lot of importance to client profiling. This way, a well-defined investment mandate can be developed that fits the individual’s needs.

Also, these are the wealth managers who are more likely to recommend products which suit the risk profile of the client. You need to ensure that the firm has put in well-defined rules to ensure that the wealth manger does not deviate from the original investment mandate that was given to you. Ideally, the wealth manager should not only focus on the returns from different finance products, but should also clearly explain the different risks associated with such investments.

You need to evaluate the past performance of the wealth manager before signing on the dotted line. Also, have a look at the performance of the products recommended by the wealth manager. Ask for the risk-adjusted performance of the model portfolio that you might be given. This will give you an idea about the real performance of the portfolio.  Speak to other clients to get insights into the advisory and research capability of the wealth manager.

Fees, fees and some more fees – You’re thinking this is the first thing you should be looking at. Yes, it is a critical factor. But not as critical as looking at the motive of your wealth manager. Someone who offers services at a low fee might actually not have enough knowledge to handle your portfolio. So, fee is important but not that much. You should look at the fee after zeroing in on a couple of wealth managers.

The fee should ideally be in accordance with the value the wealth manager can add. This means that the wealth manager should be paid based on is performance. A profit sharing fee model will be a good one to choose. Sharing profits will actually be a good thing because the wealth manager will make money only when you get profits. It’s a two way street!

One of the worst mistakes that you can make is selecting a wealth manager solely based on fees rather than his expertise or quality of advice. Here, looking at how wealth managers earn their fee will help. There are wealth managers whose major source of income comes from advisory services and then there are wealth managers whose main source of earnings would be distribution income. The latter would be a better manager than the former as the one getting distribution income may push products that earn higher commissions.

Today, there are several wealth managers who place faith in their ability to provide high quality service and on their investment advisory. These are the people who are getting more transparent about the fees they charge. They also design their fee structure in such a way that there is minimal conflict of interest. Spend some amount of your time for this research and you will find that it is time that was worth spending.

Strong parent, strong child – Most wealth management firms are arms of banks, brokerages and non-banking companies. A strong parent company will ensure that that the subsidiary remains strong. If there are any issues with the subsidiary, the parent will be quick to resolve them. A well-established parent company will help the wealth management arm with the best of facilities and personnel. This will ensure that wealth management arm gives you cutting edge research and advice. This is very important from the money management perspective. The wealth management firm will borrow best practices from its parent firm, ensuring standard services.

Phew! Managing your wealth is not so easy, after all. But you can do it on your own. You just need to get started and it will all fall into place. Now that we have covered the major areas of creating and managing wealth, you should be confident about doing things on your own. If you have trouble, get help from a financial expert. As you can clearly see it is not luck that helps build wealth but knowledge and diligence. If you find this impossible, think about the ant that can lift 100 times its body weight. If a small ant can so that, you can do much more. Everything is in your hands. Are you ready to begin your ascent to those crores?

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Category: Money Management

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